Will Europe Survive?

[dai bread]

...collecting monstrous bonuses on the way.

[Shapley]

...collecting monstrous bonuses on the way.

It seems to me Ayn Rand had something to say about that in her novel 'Atlas Shrugged'. When the railroad was failing and the government came to their rescue with a debt forgiveness scheme, the heroine's brother comments about how profitable the railroad was under his leadership. Of course, the 'profit' came from wiping out the debt, but he was quite proud of himself. One would assume he awarded himself a bonus for his being such a financial genius...

[Haggis@wk]

France plots eurozone 'breakaway group’

I do love the way that France and German are playing Cameron like a fiddle “Hey, you better join our shrinking ship if you wanna be in our club!!!" Sheesh

[dai bread]

I'll have to read the European news more carefully. I didn't think Cameron or anyone else in Britain had any intention of joining the Eurozone, especially not now.

[Haggis@wk]

I'll have to read the European news more carefully. I didn't think Cameron or anyone else in Britain had any intention of joining the Eurozone, especially not now.

The Treasury is preparing to put further billions of pounds of taxpayers’ cash at risk under emergency plans for the break-up of the euro.

Dai,

Labour has secretly wanted to join the EU since it started and why wouldn't it (or even Tories) join? Whoever is in office when Britain joins the EU will enjoy immediate, almost permanent tenure. EU incumbents receive almost unlimited campaign funds from the EU with none of that messy process of asking your supporters for funds. Incumbents enjoy an anonymity on voting record and a deliberately conceived firewall that protect them from their "constituents" (such as they are)
Almost all EU proceedings are secret and decisions cannot be challenged.

In order to achieve that kind of power Labour or the Tories would only have to promise to spend their country into penury with the added benefit of creating more dependents on the government.

[dai bread]

Yes, I do need to read European news a lot more carefully.

I wondered at the time why Britain wanted to join the Common Market rather than sticking with its Commonwealth, which had (and still has) a far bigger potential. Just look at the way India is developing, though several years late. The Africans are coming up, too, though slowly, and largely thanks to Chinese investment. Then there are the S-E Asians, not to mention us and the Aussies.

Not that it matters now. The British, and indeed Europe, are increasingly irrelevant in this part of the world. They provide immigrants and tourists, and manufactured items with snob appeal, and that's about it. Everything that used to be "made in England" is now "made in China." Even the monarchy is irrelevant to most of us, though a vocal minority cling to it grimly. It's odd. 60 years ago we were very enthusiastic about Queen Elizabeth and Prince Philip.

[Haggis@wk]

Europe’s Disaster Is Headed Our Way.

In our interconnected financial world, it would be very odd indeed if no U.S. institutions were affected by this.”

Plus this:

“Today the U.S. gross federal debt stands at around 100 percent of GDP. Four years ago it was 62 percent. By 2016 the International Monetary Fund forecasts it will be 115 percent. Economists who should know better insist that this is not a problem because, unlike Italy, the United States can print its own money at will. All that means is that the U.S. reserves the right to inflate or depreciate away its debt. If I were a foreign investor—and half the debt in public hands is held by foreigners—I would not find that terribly reassuring.”

[dai bread]

Weimar Republic, anyone?

[Giant Communist Robot]

Weimar Republic, anyone?

I don't understand the appeal of this scenario. Comparing the U.S. to Weimar on the basis of Debt:GDP states a belief that inflation is a result of that ratio. Where is the mechanism? What is the correlation? If our Debt:GDP is now about 100% consider the latest CPI figures for all items: 3.9%. Does anyone really think that less than 4 percent is similar to Weimar? Or that once we cross that threshold we'll zoom into 200% inflation? Is this rational thinking?

I tried to explain the debt earlier. It's done on a spreadsheet called the United States Dollar Monetary System. The buyers' account is debited, and a complimentary account is credited. When the note is due, the entries are reversed. Does that sound like a Weimaresque catastrophe? And this causes inflation, um,...how?

I'm going to re-read Reinhart and Rogoff. What I remember is they felt that ratio was important.

EU nations like Italy and Greece are different than the U.S. They don't use debt for monetary management, and instead use the money to fund the government. Their spending adds to their GDP's, and to taxes (if they can collect it). Their problem is they cannot repay the principle without shutting down half the government and throwing their economies into the trash bin. They cannot leave the EU without defaulting and afterword who would lend them money? They'd likely be facing a depression. The EU solution is beginning to look like they will delay decisive action until growth leads them out. I think we have a similar model here in the U.S.

Italy's debt is about 1.5 trillion dollars. I think this is roughly the same as our government has spent towards recovery, minus the TARP funds which are being repaid. The funds for our rescue came out of thin air, created by few keystrokes on a computer at the Fed. Italy can't do this. It's impossible for them to find the funds through austerity and taxes so the money will have to come from banks and other member nations.

[Haggis@wk]

...afterword who would lend them money?

Greece has defaulted on loans every two years for the past 150 years so the answer is, someone using other people's money...the European way!!!

[dai bread]

My reference to Weimar wasn't to GDP, but to the printing of money and the seemingly consequent hyper-inflation.

I suspect the supply of money, printed or fiat, is controlled better than it was in the late 1920s. I hope so, anyway.

[Giant Communist Robot]

My reference to Weimar wasn't to GDP, but to the printing of money and the seemingly consequent hyper-inflation.

I suspect the supply of money, printed or fiat, is controlled better than it was in the late 1920s. I hope so, anyway.

Oh....sorry. Our money supply is really big, but the lack of velocity keeps inflation low. Weimar was a special case, not a general one. They had big reparations to pay, and even though they had fiat money the treaty stated they had to pay in gold Marks. This means their debt was not really in their currency and beyond their monetary control and resulted in an economic drain and so on.

[Giant Communist Robot]

A reason for our money supply being so large is the Fed wants to see credit available. One of the ways they do this is by purchasing Treasuries which keeps interest rates low. There was also the stimulus programs. It's a lot of money, just sitting on the books at the Federal Reserve.

I think banks have high hurdles for credit now, but once they start making loans I'd expect to see the Fed change policy.

Germany considers the consequences of a Greek exit

[Giant Communist Robot]

Here's some possibilities:

1. Greece exits voluntarily. Gets the French and Germans out of their hair, but could give them a depression, and who's gonna lend them money?

2. Greece is forced out. Same as above. I need to mention the loss of trade for the EU.

3. Greece is bailed out. Unpopular with those who would be bailing.

4. Greece defaults. All those EU bankers would be cursing themselves for buying Greek debt. EU goes into recession.

5. Partial bailout, partial default. This is it. More haircuts on the way for Greek bondholders.


...and what about Italy?

[Haggis@wk]

FIVE LESSONS FOR AMERICA FROM THE EUROPEAN FISCAL CRISIS.

Here’s a key one: Nations reach a point of no return when the number of people mooching off government exceeds the number of people producing.

[Giant Communist Robot]

Apparently the ECB is considering a Federal Reserve style QE where they will monetize the Greek and Italian debt. The stumbling block is the legality of the strategy. When I see how smoothly they allowed a Greek default without triggering the CDS's I think they can do this.

The devil's in the details; some reform needed. EU nations must rely on taxes and debt for funding; if they can't collect taxes they are doomed. I would say corruption is at the heart of the matter.

Not that the U.S. Congress is clean. Theirs' is a different form of corruption--let's call it "sustainable corruption".

[Giant Communist Robot]

Here’s a key one: Nations reach a point of no return when the number of people mooching off government exceeds the number of people producing.

Economically EU nations are pretty much the equivalent of U.S. states. They are in similar boats.

[Shapley]

Economically EU nations are pretty much the equivalent of U.S. states. They are in similar boats.

Politically, we see the EU attempting to maintain unity, possibly by expanding its authority. Not unlike Mr. Lincoln's response to the Civil War and Mr. Roosevelt's response to the Depression. So they are in similar boats in more ways than one.

[Haggis@wk]

And we expect them to solve hard, financial problems?

THE EU was ridiculed last night after it took three years to issue a new rule that water cannot be sold as healthy.
In a scarcely believable ruling, a panel of experts threw out a claim that regular water consumption is the best way to rehydrate the body…

… no water sold in the EU can now claim to protect against dehydration. Any producer breaching the order, signed by European Commission President Jose Manuel Barroso, faces being jailed for up to two years. It took the 21 scientists on the panel three years of analysis into the link between water and dehydration to come to their extraordinary conclusion.

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[Shapley]

It's those Frenchmen fearing unfair competition to their wine sales that's behind it...